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MOSL: SHRIRAM CITY UNION FINANCE (Buy)-Liquidity crunch impact meaningful-Asset quality improves

Shriram City Union Finance: Liquidity crunch impact meaningful; Asset quality improves

(SCUF IN, Mkt Cap USD1.6b, CMP INR1718, TP INR2000, 16% Upside, Buy)

 

• Shriram City Union Finance’s (SCUF) PAT increased 2% YoY to INR2.6b in 3QFY19 – a 10% beat – largely driven by provision write-back of INR161m. On a PPoP basis, there was a 12% miss on our estimates, mainly due to the slowdown on account of tight liquidity.
• Disbursements declined 29% QoQ/YoY to INR45b. Excluding gold finance, disbursements were down 31% YoY. 2W disbursements hit their lowest level in the last five quarters at INR10.5b, though traditionally 3Q has been the strongest quarter for 2W disbursements. Dec’18 accounted for 50% of 3Q disbursements. AUM grew 10% YoY to INR288b.
• Spreads on AUM declined ~100bp QoQ to 9.9%, as yield on AUM contracted 70bp QoQ and cost of funds increased 50bp QoQ. Funding mix remained largely similar, with retail/institutional contributing 16%/84%.
• While availability of money improved in the past two months, cost of money remained elevated. Opex declined 7% YoY due to lower employee and other expenses. Operating profit declined 5% YoY. C/I ratio expanded 120bp QoQ to 40% as opex declined less than total income.
• There was a provision write-back of INR161m. However, write-offs remained at levels similar to 2QFY19 at INR1.5b. Gross stage 3 declined 50bp to 9.4%.